NEW YORK WORKERS’ COMPENSATION OCTOBER …

1 NEW YORK WORKERS COMPENSATION OCTOBER 1, 2017 loss cost filing actuarial Committee recommended loss cost Level Change: Proposed loss cost Level Change: Approved loss cost Level Change: The Rating Board submitted the 2017 General loss cost Revision to the New York State Department of Financial Services on May 15, 2017 requesting an average change of in the loss cost level to become effective on OCTOBER 1, 2017. The loss cost revision reflects the experience of the two most recent policy years, as well as projected trends, benefit level changes, and changes in loss adjustment expenses.

2 In addition, the proposed change reflects the impact of certain components of the 2017 workers COMPENSATION reform. The filing proposed no changes to the terrorism and catastrophe loss cost provisions. The filing was approved on July 17, 2017. The attached actuarial exhibits provide specific information on all components of the approved 2017 loss cost revision. Included also is the detailed filing Memorandum that accompanied the Rating Board s filing submission. The Department of Financial Services approval letter is also attached and can be found following the actuarial exhibits.

3 New York COMPENSATION Insurance Rating Board 733 Third Avenue New York, NY 10017 Tel: (212) 697 3535 NEW YORK WORKERS COMPENSATION OCTOBER 1, 2017 loss cost Revision Explanatory Memorandum This memorandum, together with the attached actuarial exhibits, provides supporting documentation for an overall loss cost level change of , to become effective on OCTOBER 1, 2017. The proposed loss cost change is based on the latest statistical data reported by the Rating Board s member carriers and reflects the application of generally accepted actuarial principles and methodologies.

4 The elements contributing to the overall change are summarized below and are presented in detail on the following pages. 1. Change indicated by Policy Year 2015 experience 2. Change indicated by Policy Year 2014 experience 3. Average change indicated by experience [(1) + (2)] / 2 4. Change in prospective claim cost , frequency and wage levels 5. Change in loss adjustment expense (LAE) 6. Change due to experience, trend and LAE (3) x (4) x (5) 7. Change due to 2017 reforms 8. Change due to standard legislation and regulation 9. Indicated Manual loss cost Level Change (6) x (7) x (8) 10. Change in Terrorism Provision 11.

5 Terrorism Provision loss cost as percent of total loss costs 12. Change in Provision for Natural Disasters and Industrial Cats. 13. Natural Disasters and Industrial Cats. Provision loss cost as percent of total loss costs 14. Proposed Total loss cost Level Change [(9) x ( (11) (13)) + (10) x (11) + (12) x (13)] A listing of the actuarial exhibits follows this explanatory memorandum providing easy reference for reviewing the underlying support for this filing . - 1 - OCTOBER 1, 2017 loss cost filing Explanatory Memorandum Page 2 1. Experience of Policy Years 2015 and 2014 The calculation of the indicated change in loss costs derived from the experience of Policy Year 2015 is presented as Exhibit B, and of Policy Year 2014 as Exhibit C.

6 The experience of Policy Years 2015 and 2014, valued as of December 31, 2016, has been compiled from the latest available statistical data submitted by the Rating Board's member companies. Similar to past years, large deductible experience is included in the determination of the indicated experience change. Although this experience is still viewed as unique and similar to self insurance, its inclusion reflects the Department s long held position that this data should be included in the annual Rating Board filing . Furthermore, at the previous direction of the New York State Department of Financial Services ( DFS ), the policy year indication also includes the experience of the State Insurance Fund.

7 Beginning with policy year 2008, standard premiums have been reported in the annual New York Financial Data Calls on a designated statistical reporting (DSR) level. DSR level represents standard premium reported to NYCIRB excluding the effect of carrier loss cost multipliers. As a result of removing loss cost multipliers, the premium becomes an expected loss cost level against which the actual loss experience can be measured. The premiums are then brought to the current loss cost level. This adjustment is done in accordance with standard actuarial procedures, reflecting the latest approved loss cost level changes.

8 Premium amounts are also adjusted to the same level of experience rating impact that is expected during the prospective filing period. The Experience Rating Off Balance adjustment factors are for PY 2015 and for PY 2014. The derivation of these adjustment factors can be found on Exhibit D, Sheet 1B (page 5). After inclusion of these Experience Rating Off Balance factors, the resulting final premium on level factors are for policy year 2015 and for policy year 2014. The on level calculations are shown on Exhibit D, Sheet 1A (page 4). Similar to previous filings, the Rating Board has utilized paid plus case losses for the policy year loss evaluation.

9 Indemnity and medical losses were analyzed separately in recognition of the significant differences in their respective development patterns. Losses emanating from the September 11, 2001 terrorist attacks have been excluded from the ratemaking data. Both policy year 2000 and policy year 2001 losses have been adjusted to remove the effects of the September 11, 2001 experience that was identified and reported under Catastrophe Code 48. The definition of Catastrophe Code 48 encompasses claims directly arising from the commercial airline hijackings of September 11, 2001 and the resulting subsequent events with accident dates of September 11, 2001 through September 14, 2001.

10 For loss development, two, three, four and five year average link ratios, as well as a three year average, calculated after excluding the highest and lowest points, were analyzed for both indemnity and medical. Development patterns can vary at different report levels. Following examination of the different factors, the selected loss development methodology utilizes five year average factors from first to twentieth reports to smooth the impact of any variations in the observed development patterns. This is consistent with the approach used in last year s filing . Separate development factors - 2 - OCTOBER 1, 2017 loss cost filing Explanatory Memorandum Page 3 were derived for the non large deductible experience, the large deductible experience, and the State Insurance Fund using the same methodology, except for the 11th to 12th report development ratio for the State Insurance Fund, where the middle three of five factors were used.